We look forward to talking to you.

Your data will only be processed for the purposes for which it was collected in accordance with applicable Data Protection legislation. You have other rights in relation to your personal data which apply in certain circumstances and are described in more detail in our Privacy Notice.

*Indicates mandatory field.

Thank you, your callback request has been sent.

There has been an error, please check the information you have entered below. If you're still experiencing issues, please call +353 1 614 3346 to speak to someone.

First name
*

Last name
*

Phone number
*

Email address

Preferred time of day for contact*

What is your query?*

We look forward to talking to you.

Your data will only be processed for the purposes for which it was collected in accordance with applicable Data Protection legislation. You have other rights in relation to your personal data which apply in certain circumstances and are described in more detail in our Privacy Notice.

*Indicates mandatory field.

Thank you, your email request has been sent.

There has been a technical error. Please call +353 1 614 3346 to speak to someone.

Early days on a Northern Ireland Brexit solution?

16th September, 2019

The quote ‘Never believe anything in politics until it is officially denied’ has not only been attributed to Otto Van Bismarck, but more recently to Jim Hacker in the British sitcom ‘Yes Minister’. This is good advice. Initial denials from 10 Downing Street last week that Boris Johnson was not considering Northern Ireland-only solutions clearly don’t ring true. The Financial Times reported last week the ‘UK strategy is to hold talks with the EU on “all island” issues’ and that ‘Mr Johnson wants the Northern Ireland Assembly to have a say on new EU rules in the region’. Despite denials from the Democratic Unionist Party (DUP) it seems clear that the debate is moving in this direction. Over the weekend, both Priti Patel and Stephen Barclay insisted progress was being made in negotiations and they were still hopeful for a deal.

As the debate around Northern Ireland only solutions has matured the perceived likelihood of a ‘no-deal’ outcome has reduced. Betting odds now imply only an 18%* probability of a ‘no-deal’ outcome in 2019, down from a peak of 44%. Sterling has also benefitted, gaining value, with the exchange rate against the euro falling below 89p on Monday September 16th for the first time since late July. However, we still think the betting odds place a too sanguine low risk on a highly disruptive ‘no-deal’ Brexit.

What are these new Northern Ireland solutions?

Boris Johnson initially signalled the strategy of regulatory alignment for agri-food could be extended to other sectors to avoid a hard border. To bring unionists onside there could be some oversight by the Stormont Assembly. Of course, the assembly is currently closed, but in any EU/UK withdrawal agreement there would be time during the ‘transition period’, when the UK remains inside the EU single market (perhaps out to end-2022) to reconstitute the Northern Ireland power-sharing institutions. However, these proposals clearly fall well short of a fully-fledged, legally binding, workable alternative to the Northern Ireland backstop that the Irish government can accept.

Even if a deal is forthcoming it will almost certainly require at least a short extension of Article 50 to implement – which would be a difficult climbdown for Boris Johnson. Indeed, in an article published on Monday September 16th in the Daily Telegraph Boris Johnson said, ‘if we cannot get a deal – the right deal for both sides – then the UK will come out anyway’. Johnson could still find a loophole in the Hilary Benn bill intended to avoid a ‘no-deal’ Brexit, requiring the Prime Minister to apply to the EU to extend article 50 to January 31st. More radically, some voices have suggested Johnson might simply break the law so that the UK leaves in any case on October 31st.

It is hard to know how genuine the UK government initiatives may be? The report that Dominic Cummings’ said the UK’s negotiations are ‘a sham’ is still fresh in the mind. It is clear some elements within the Conservative party and perhaps even the British government are actively seeking a ‘no-deal’ outcome. The impression Johnson is just blustering his way forward with no clear strategy cannot be ruled out. That said, parliament has frustrated Johnson’s desire for an early mid-October election – snookering his strategy to push for a ‘people versus parliament’ election before October 31st. Rather than risk an election contest in November, whilst the UK could be suffering from the disruption of ‘no-deal’ Brexit, there may well be pressure now within the Conservative government to find a deal.

The next key event is the UK Supreme Court’s decision on Tuesday whether the decision to ‘pro-rogue’ parliament was illegal. Courts in Northern Ireland and England have already found the decision was not illegal. However, the Scottish Court of Session found Johnson had misled the Queen, and hence the decision is illegal. Even if the UK Supreme Court finds the decision was legal under English law, it may be illegal under Scottish law, in which case parliament will be reopened quickly.

Meanwhile in Ireland...

Minister for Finance Paschal Donohoe has confirmed that he will base the October 8th Budget for 2020 around a ‘no-deal’ economic scenario where Gross Domestic Product growth flat lines in 2020, creating a €6bn deterioration in the public finances (or a deficit in the range of 0.5%-1.5%) – which he would expect to close over 2-3 years. This approach clearly signals to the UK that Ireland is prepared should the clock run-down to the October 31st deadline. In addition, it will allow the Minister for Finance address some of the criticism from the Irish Fiscal Advisory Council (IFAC) that public spending has been allowed to grow too quickly and should be reined in.

Finally, the appointment of Phil Hogan as EU Trade Commissioner in the new EU Commission announced by Ursula von der Leyen last week places him in a key position, crucially to ensure that the outcome of any future EU/UK trade negotiations does not conclude with a hard border in Northern Ireland. It’s worth noting Hogan has been one of the more vocal critics of the UK government – often in colourful language. In August, Hogan said “Prime Minister Johnson’s hero is Winston Churchill and he seems to view himself as a modern-day Churchill. However, in the event of a ‘no deal’ Brexit, the UK government’s only Churchillian legacy will be: Never have so few done so much damage to so many”.

*Source: betdata.io, 16th September 2019.

Warning: Past performance is not a reliable guide to future performance. The value of investments may go down as well as up. Returns on investments may increase or decrease as a result of currency fluctuations.

DAVY GROUP

RESOURCES

DISCLOSURES

Established in 1926, the Davy Group is a trusted market leader in wealth management and capital markets, building rewarding relationships that last. We are over 700 people, managing €14bn+ of our client assets, with offices in Dublin, Belfast, Cork, Galway, and London. At Davy, it’s not just business, it’s personal.

J & E Davy, trading as Davy, Davy Private Clients, Davy Capital Markets, Davy Select, Davy Institutional Consulting, Davy Real Estate, Davy Research, and iCubed, is regulated by the Central Bank of Ireland. J & E Davy is a member of Euronext Dublin and the London Stock Exchange. In the UK, J & E Davy is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Financial Conduct Authority are available from us on request. Davy Private Clients UK and Davy UK are the trading names of J & E Davy (UK) Limited. J & E Davy (UK) Limited is authorised and regulated by the Financial Conduct Authority. Davy Corporate Finance is regulated by the Central Bank of Ireland. In the UK, Davy Corporate Finance is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Financial Conduct Authority are available from us on request. Davy Global Fund Management Limited, trading as Davy Global Fund Management, is regulated by the Central Bank of Ireland. In the UK, Davy Global Fund Management is authorised by the Central Bank of Ireland and is subject to limited regulation by the Financial Conduct Authority (“FCA”). In Luxembourg, Davy Global Fund Management is authorised by the Central Bank of Ireland and is subject to limited regulation by the Commission de Surveillance du Secteur Financier (“CSSF”). Details about the extent of our authorisation and regulation by the FCA and CSSF are available from us upon request. Advance Fund Management Limited is regulated by the Central Bank of Ireland. Davy Fund Managers is regulated by the Central Bank of Ireland. Davy Securities is regulated by the Central Bank of Ireland. Davy Securities is a member of FINRA and SIPC.

Davy uses cookies to improve your browsing experience and to provide advertising which we believe may be of interest to you. By continuing to browse the site, you consent to their use. To find out more about Davy Group's use of cookies and how to manage and disable cookies please visit our Privacy Notice.